Lower prices for shoppers without lowering wages – magic!

Last week’s blog talked about the Costco/Coca Cola price negotiations breaking down and Coke’s product not being available to shoppers in Costco’s stores until the dispute is resolved.

This week, when the global COO of General Mills Chris O’Leary was in Australia, he talked openly about manufacturer pricing in Australian grocery after being cleverly prompted by Sue Mitchell from the AFR.

Later in the week my global CEO and CFO were in Australia and New Zealand for board meetings and budgets. They updated us on the productivity improvements being achieved across North America in sales forces and store labour – the biggest cost area for almost every company involved in the retailing of products to shoppers.

Running sales forces and managing store staff is one of single most significant costs associated with creating a great shopper experience, and I predicted last year that significant improvements in productivity outside of warehouse, factories and inventory management would lead to improved profitability for retailers and manufacturers alike.

However, while huge gains have been made by adopting and applying technology to the production and logistics of products, little thought has been applied to the best ways to organise the labour involved in this. The only answer has been to pay them as little as possible and ask them to do more stuff. That might sound a little simplistic but it’s not too far from the mark.

For instance, in a recent conversation with John Aden, COO for International at Wal-Mart, he highlighted the fact that every piece of research done in the world shows that better paid, and better equipped staff are more productive in the long run. Pay rates that reflect their worth, along with investment in equipment in the form of technology and training in how to best use it, delivers long-term productivity. When I was a kid, Japan was the world’s low cost producer thanks to low labour costs. Then pay rates rose and technology kicked in to maintain that advantage in order to deliver the right quality at the best cost.

Across the Wal-Mart International stores we estimate that between three and five million people work in servicing those store needs as manufacturer reps and retail service providers. That doesn’t include the 720,000 staff who work for Wal-Mart as staff in their stores. Imagine how much money could be saved by driving productivity into that area of cost. Imagine how much cheaper products would be at retail without decreasing profits or paying people less.

Nirvana? No, not really, just the natural process large service providers around the world are applying to labour costs.

So what happens when you organise that labour better via systems and processes captured by great technology and culture?

In the US over the past 36 months, my company has worked with manufacturers and retailers to do just that. In one case we have lowered cost on a team of almost 3,000 field staff by 25% without paying them less. In another case we have improved productivity as measured by completing more tasks within a given time frame by 78%. That’s not a typo. It’s been applied to over 10,000 staff working across the whole of the USA in over 66,000 outlets. Nobody has been paid any less in that time.

So how is this achieved? Well, while it’s a secret of the “I could tell you but then I’d have to kill you” type, let’s just say the answer lies in lots of very clever people analysing lots of data and harnessing technology from a myriad of sources to streamline processes.

It is a genuinely big idea and one which, when applied to product cost, could help prevent the “adversarial head-to-head meetings” over price increases we see happening in many areas of retail around the world.

What’s more, it helps to lower the cost of goods, lowers the carbon footprint, improves shopper experience, protects margins for shareholders and improves wages for staff.

With a pitch like this, perhaps my future should be in politics!

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In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.